SIFIs and STATES

Although regulators have made strides in reducing the likelihood that global financial institutions will collapse, too little has been achieved in constructing a framework for managing the financial resolution of these institutions if and when regulation fails. Given a long history of regulatory capture or fatigue, such a system is essential to protect the world's financial infrastructure. Two propositions are central to creation of a workable approach. First, government funds will generally be necessary to permit an orderly resolution, if only to provide temporary liquidity and market confidence, despite official reluctance to concede that reality.Second, no resolution system for global institutions will be workable unless regulators are prepared to give deference and cooperation to one national regulator as the leader of the global effort. From those two propositions, it follows that the jurisdiction prepared to provide the bulk of the necessary funds for resolution must also be given that leadership role. Success or failure of such a system may depend upon advance commitments as to both financial responsibility and regulatory deference and that commitment is unlikely unless it is multinational